Mortgages Based on Muslim Law

If you live in a large North American city, you've likely become accustomed to seeing street signs in different languages. It's an indication of our multi-cultural landscape. Well, get ready because the banking industry is taking yet another step towards meeting other cultures on their own turf with the advent of sharia-compliant mortgages.

In an article in the Globe and Mail, it is reported that two Canadian banks are looking at providing sharia-compliant products, including mortgage loans, as
part of a strategy to reach a growing target market -- immigrants. There is a growing Muslim minority in both the US and Canada. That minority is looking for financial services that recognize Muslim culture and laws.

How does a banking product become sharia compliant? In general, the banking services can't have any explicit interest;
transactions can't be in economic sectors such as gambling, alcohol, pork or
pornography; and they should be low risk.

So how the heck do you make money on no-interest mortgages? Well, UM Financial Inc. has found a way. This company is providing a sharia-compliant mortgage in the province of Ontario, and has already signed up 500 homeowners. The product is popular despite the fact that the homeowner is charged a deposit and it costs more than a regular mortgage. However, the "loan" is structured as a rent-to-own approach, so that it doesn't technically charge mortgage interest rates. UM Financial actually has a waiting list of 5,000 people who want to convert their mortgages to this approach!

Standardization of these financial products won't be coming soon. Each must be approved by sharia scholars. There are only a few of these unique individuals available, making waiting times for new product approval long.

Michael Chantrel

2 comments

Posted by Michael on May 30,2007 at 7:20 PM

I'd have to agree that I think the market for these kinds of "mortgages" are very limited. I don't think that the idea of "rent to own" is very attractive for most of us.

Posted by Jefferson Otwell on May 30,2007 at 2:53 PM

Christian countries went through a similar period of development in the High Middle Ages and on. Our usury laws are remnants of such things. In the end, as you said, this way of doing business is too expensive.

I think that sharia law attempts to address some justice and equity issues. Comments on our subprime problems of late show that such concerns are still around. However, no one in the West is considering doing away with interest.

I venture that these sharia-friendly "mortgage" devices will grow in popularity, but only to meet the need of those trying to stay faithful to their notion of Islam. I strongly doubt that others in the market will find these instruments to be handy.